The world is at a crossroads. With now just 10 years to go until irreversible climate change, urgent action is needed across society to dramatically reduce carbon emissions and help people adapt to the changing climate. To create a brighter outlook for future generations, we must do everything we can to keep global warming to less than 1.5°C (compared to pre-industrial levels), in line with the landmark 2015 Paris Agreement. This means transforming ‘business as usual’ and overcoming political differences to accelerate progress towards a sustainable, low-carbon economy.
Despite some concerted action by countries including the Netherlands and the UK to establish concrete climate strategies, American Meteorological Society scientists have reported that levels of gases heating the planet in 2018 were higher than ever recorded.
The financial sector has a crucial role to play in protecting our fragile climate. Our decisions on loans and investments have a huge impact on the economy, society and the environment. The world’s top banks have poured US$2.7 trillion into fossil fuels since the adoption of the Paris Agreement, for example. But it’s precisely because we create a significant impact that we also have a major opportunity to help decarbonise the economy and advance sustainable development.
Indeed, at Triodos Bank, we believe money can be a force for good. We finance the highest number of renewable energy deals in Europe, providing US$630 million in 2019. But we know that there is still much to do. Reducing our sector’s carbon footprint rapidly and sustainably can only be achieved through dedicated, collective action. That’s why Triodos Bank joined pioneering Dutch financial institutions to form the Partnership for Carbon Accounting Financials (PCAF). The group signed a Dutch Carbon Pledge in 2015, committing its participants to create a standardised way to capture financial institutions’ carbon footprints. It was the first effort of its kind in the world; by the industry, for the industry.
Building momentum for change
Banks are currently making progress on sustainability at different rates. PCAF’s members believe that investors and financial institutions can make a significant contribution to delivering the radical shift we need to decarbonise the economy. This starts with our sector gaining a full understanding of its carbon footprint. That’s why PCAF was born – a group of Dutch financial organisations committed to helping our sector move beyond measuring and improving the carbon footprint of its everyday operations to address the more challenging task of assessing the much larger, indirect carbon footprint associated with the loans and investments it makes.
The best way to achieve this is to create a shared approach that everyone in our sector can use – and to make sure it’s linked to financial risk analysis and performance. In this way, we can set carbon reduction goals, measure and compare progress, establish an industry benchmark, and tell our customers how we’re doing. We collectively launched the PCAF methodology in late 2017, and started reporting using this approach in Triodos Bank's 2018 and 2019 annual reports.
While this is good progress, it’s important to be clear about what carbon accounting does and doesn’t tell us. For example, avoided emissions, such as a solar project, can’t cancel out the emissions associated with burning fossil fuels. What’s more important is that solar and other forms of renewable energy increasingly and urgently, given the scale of the climate emergency, replace the need for energy from fossil fuels. Given that we can only burn so much carbon before global warming presents a real risk to the survival of humanity, these distinctions matter.
How Triodos Bank is using carbon accounting to make a difference
While our operations have been climate neutral for many years, we are committed to doing much more. We want to use the PCAF approach to understand how we can make the greatest possible positive difference in society.
What are we measuring?
In our first reporting year, we prioritised measuring the carbon impact of the loans and investments with the greatest potential to address carbon emissions. That included loans and investments in areas such as organic farming, care for the elderly, renewable energy and conservation. In reporting for 2019, we extended the scope of our carbon accounting to 100% of our loans and funds’ investments and improved the data quality in some sectors.
Using the PCAF methodology, we’re measuring three types of emissions in relation to the companies we finance: generated emissions (produced through economic activities), avoided emissions (such as clean energy generated through renewable energy projects) and sequestered emissions (greenhouse gas emissions absorbed by natural carbon sinks, such as forestry projects). By evaluating the results, we can make informed decisions about which investment opportunities offer the best potential to further reduce carbon emissions in the future.
What did we learn?
Our longstanding commitment to sustainable finance is working. And the PCAF approach has allowed us to understand the results of our efforts better.
In 2019, Triodos Bank and its investment funds financed renewable energy projects and energy saving projects that avoided over 962 ktonne of CO2 equivalent emissions compared to fossil-fuel power generation, equal to the avoidance of emissions of over 5.9 billion kilometres travelled by car.
Next to investing in renewable energy, Triodos Bank also financed forestry and nature development projects. This resulted in the sequestration of approximately 24 ktonne CO2 equivalent, equal to at least 361,000 mature trees. Meanwhile, the emissions that were generated by the other loans and investments covered in this climate impact measurement were approximately 289 ktonne CO2 equivalent.
So, what’s next?
At Triodos Bank, we’ll develop science based targets, keep improving the way we’re measuring our impacts and consider how we can expand our use of the PCAF approach throughout our portfolio. To ensure we remain transparent about what we’re doing, we’re collaborating with other financial institutions to develop shared ways of reporting these efforts. And together with our PCAF partners, we’re committed to taking carbon accounting global.
Bringing carbon accounting into the mainstream
For carbon accounting to really make an impact, and for investors to compare the impacts of investments with confidence, banks and financial institutions worldwide must take a similar approach.
The Global Alliance for Banking on Values (GABV), an international network of values-based banks, stands to play a vital role in making this happen. In February 2019, 28 of GABV’s members, led by Triodos Bank and US institution, Amalgamated Bank, and representing combined assets of US$150 billion, pledged to assess and disclose their greenhouse gas emissions within three years. To do this, they will adopt the PCAF measurement approach, collaborating to understand and manage their financed emissions, and bring carbon accounting into the mainstream. Similarly, in July 2019, over 50 financial institutions in the Netherlands officially committed themselves to the goals of the Dutch Climate Agreement, pledging to take measures to reduce CO2 emissions by 49% by 2030. We have pushed the institutions to start disclosing the carbon footprint of their combined €3,000 billion of funds under management next year, using the PCAF approach.
This is just the beginning. Already, these developments are prompting wider efforts to measure and address the carbon impacts of the financial sector.
When global banks met at New York Climate Week in September 2019, many signed the United Nations Principles for Responsible Banking, which call for evidence-based targets for our industry. At the same meeting, a programme was launched to substantially extend PCAF’s reach around the world and more than double the number of financial institutions using its practical, scalable methodology.
Carbon accounting is a vital foundation for progress. While it doesn’t provide a complete solution to the climate challenge, it could set new standards for banking that are a key part of the sector’s efforts to play its part to address the climate emergency. There should be no ‘dark’ green or ‘light’ green banking anymore; there should just be green banking. And it should be the norm. Ultimately, we could see the financial sector forging a new role in advancing a brighter, more sustainable future.
About Kees Vendrik
Kees Vendrik has been chief economist at Triodos Bank since 2017. He was previously a board member and the vice-president of the Netherlands Court of Audit, a role he held from 2011. From 1998-2010 he was a member of parliament representing GroenLinks, the green political party in the Netherlands, acting as spokesperson on the environment, healthcare, higher education and energy policy.
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We offer expertise and funding to power renewable energy projects. So far in the UK, we’ve financed nearly 500 small and large-scale energy projects that might use solar, hydro, wind, energy efficiency, energy storage or renewable heat technologies.